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February 12, 2005

Nouriel Roubini Begs for Alan Greenspan to Save Us

However, the odds that Greenspan will do what Roubini wants him to do are very low:

Nouriel Roubini's Global Economics Blog: What did the Delphic Oracle mean on the current account? Reading Greenspan's Tea Leaves. And a modest appeal to the Chairman to speak up on our reckless fiscal policy.: Last Friday Greenspan gave a speech on the current account arguing that the US current account deficit.... [T]oday John Berry (leading Fed Watcher and Bloomberg columnist) says... that markets and commentators got it all wrong.... Berry's reinterprets Greenspan's speech in a way that is totally at odds with the most commentators' interpretation of it (see for example Brad's latest blog commenting on Greenspan's speech) and the market reaction to it.

Berry says that... in order not to trigger another dollar rout like the one following his November comments... Greenspan used a softer tone while still being seriously concerned about the US current account.... If he is right, the Fed has a really serious communication problem.... Since what happens to the US current account is crucial... the Fed and the Chairman may want to be more precise when they speak in public; at the very least, they now need to clarify their views in public, not indirectly via their semi-public leading Fed watcher....

Greenspan has been flip-flopping about his concerns on the US current account... speeches in 2003-2004 downplaying any risk... in November he sounded a serious alarm... on Friday a speech... interpreted in a way leading to a sharp dollar rally... corrected the next Monday by one of the few true Fed watching insiders - the authoritative John Berry....

Worse of all, the Chairman on Friday seemed to endorse publicly the view that the US fiscal deficit will shrink... this it totally at odds with what the administration is actually doing.... The Chairman already made the biggest mistake of his two-decade long tenure when he repeatedly endorsed the two Bush tax cuts of 2001 and 2003.... This is the most reckless change in US fiscal history ever and the Chairman fully endorsed it.... Everyone under the sun, including the Republicans in Congress and Greenspan, knows that spending cuts alone will not be sufficient to reduce the deficit and that the budget presented by Bush and his circus of cheerleading clowns is utter nonsense....

So, since he is by now a brilliant and very successful but effectively lame duck Fed Chairman... he owes... the country is to speak clearly for once... arguing.... 1. Let us control fiscal spending by reintroducing the PAYGO rules.... 2. We need to reverse a meaningful fraction of the tax cuts passed in 2001-2003, especially those that favor the wealthiest.... 3. Let us fix the current Social Security funding gap - the $3.4 trillion expected gap over the next 75 years - via a variant of the Greenspan 1983 solution or a variant of the Gale-Orszag solution. And let us dump any idea of carving existing payroll contributions to create private accounts.... 4. Let us create a commission to seriously address the long-run problems of Medicare....

Alan... give that speech.... [D]o a big favor to the country and close your successful two-decades long Fed leadership on a high note and tell to the country that the Emperor has no clothes.... most of your Fed fellow governors and Fed presidents - as well as your staff - are really really scared of this growing fiscal deficit and this growing... current account deficit... it is up to you to speak up. As the great leader of the only policy institution in Washington that has any credibility left (as the Treasury, CEA, NEC and West Wing are all a bunch of clowns, buffoons and cheerleaders for Bush's delusional fiscal dreams) it is your duty to speak.... This is your responsibility and you owe it to the country and the world....

Not going to happen. Still, it is interesting to contemplate what Greenspan would have long since been saying in public had a Democrat been following this particular set of policies (with tax cuts for the rich replaced by expanded social programs)...

:-)

Posted by DeLong at February 12, 2005 01:55 PM

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Comments

... Greenspan would have long since been saying in public had a Democrat ...

Oforchrissake it isn't just Greenspan. Imagine what Hannity, O'Reilly, Limbaugh, the WSJ Editorial Page, Chris Matthews, Timmy whathisname, Jonah Goldberg, all of Weekly Standard, etc etc etc would have been saying. The nonstop self-righteous shreiking would have forced all of the "liberal" media to play along, hoping to hold onto some pitiful market share that way.

Why-oh-why indeed. That's why.

Posted by: Alan at February 12, 2005 02:17 PM


It would also be terrific if Greenspan could weigh in on hints by Bush and other Republicans that the SS Trust Fund obligations are not real may not be honored. Inasmuch as he headed the commission that created the Fund.

Posted by: Bob H at February 12, 2005 02:17 PM


It would also be terrific if Greenspan could weigh in on hints by Bush and other Republicans that the SS Trust Fund obligations are not real may not be honored. Inasmuch as he headed the commission that created the Fund.

Posted by: Bob H at February 12, 2005 02:18 PM


"A bubble can easily be punctured. But to incise it with a needle so that it subsides gradually is a task of no small delicacy. Among those who sensed what was happening in early 1929, there was some hope but no confidence that the boom could be made to subside. The real choice was between an immediate and deliberately engineered collapse and a more serious disaster later on. Someone would certainly be blamed for the ultimate collapse when it came. There was no question whatever who would be blamed should the boom be deliberately deflated."
-J.K. Galbraith, "The Great Crash"

I suggest that thoughts of a similar nature operate on the Fed with regard to the dollar.

Posted by: Robert at February 12, 2005 03:21 PM


I hate Greenspan. He's such a tool. He is as complicit in this current budget mess as Bush and Congress is, if not more because he supposedly has some sense.

Posted by: Unstable Isotope at February 12, 2005 04:21 PM


Greenspan, oh you mean the Randian who baited everyone with "Social Security Reform" in 85, helped get us into the savings and loan bailout (aka the buy Texas act), looked good when some competent folk ran the Treasury in the 90s, sold us out again when the new owners cut them "evil taxes" and is now ready to devalue the dollar so that it hits parity with the yen while defunding everyones retirement.

Him you expect good of?

Posted by: Eli Rabett at February 12, 2005 07:07 PM


Greenspan wants to stay out of jail.
He wants to softly whisper "The president is a lunatic.", so when the shit hits the fan he can tell the Congress "But I did warn everybody! It would have been so much worse without me holding him back! The dollar would have collapsed BEFORE the 2004 elections if I hadn't restrained him!"
Not that that will help. He doesn't understand nonfinancial economics and it's political consequences.

Posted by: walter willis at February 12, 2005 09:10 PM


As the great leader of the only policy institution in Washington that has any credibility left...

Huh? The Fed lost all remaining credibility with Greenspan's cheerleading for Bush's idiot tax cuts.

Posted by: flory at February 13, 2005 11:50 AM


Ir-Rock of Ages

We don't often stop to think of the shoulders we stand on,
the paths already trodden long before our time on stage.
Our houses, 250 years of English ship's carpenter tradition,
our autos, colossally refined horse coaches, 100's of years
of English carriage tradition. Why walk, when you can ride?

And few if any stop to ponder the lives of those who went
before us, the trappers who walked these same paths now
paved under asphalt, the cattleman's ancient fence corner
unearthed, the homesteader's carefully placed rock cairn
now indistinguishable from the rubble of modern society.

Is that what we're doing in Iraq? Society-building? Tearing
down, transforming a civilization impossibly more ancient
than our own, rebuilding it in a new fascade, a glittering
shell of "liberty and freedom", a shell which only serves
to disguise the slimey underbelly of corporate socialism?

I was one of the lucky ones trapped overseas on 9/11, as
the bin Ladens and House of Sauds were safely winging
their way back to sanctuary. I was one of the lumpen clods
stuck on the beach, waiting to go home. Maybe because
I'm so awfully fair-skin, English-boned and silver-haired, a
native Hawaiian put down his board and strode over to me.

"This is what you get, you white people," he yelled at me.
"You treat people like dogs, until one day they'll bite you!"

I tried to stutter that I knew of and sympathized with his
story. How the American plantation owners, granted gifts
of land from the Hawaiian Queen, had banded together
and deposed her, perpetually under house arrest until
she died, destroying in one moment of shock and awe
a Hawaiian civilization as least as ancient as England's.

But he was venting, wrath any displaced and disenfranchised
warrior feels when his lands are stolen, and he's been reduced
to a pauper, a generation of paupers. A race now, of paupers.

So back to Iraq. Once our KFC's and MickeyDee's move in,
WalMart's of Chinese schlock flood their market, and foreign
'guest' workers have taken all the oil field jobs, where does
that leave Iraq's warrior-sons? Husbands to retail salesclerks?
Rug merchants? Common laborers? Indentured servants?

"First they pluck one feather then another feather from you,
until you're left standing there all naked in a pile of sh!t."
Pella the Conqueror

And the ultimate irony, I guess, is that these warriors-sons
of Iraq are now persona non grata around the world. Not
Saudi's, not bin Laden's, no. Iraq had nothing to do with
9/11 WTC, but as Arabs, Iraqi's are branded by America's
NeoConian Scarlet Letter Weltzeit. RFID'd Undesirables.

They have only two choices. They can capitulate and live
as slaves and servants in their own lands, as X'n foreigners
steal the oil wealth that lays beneath her sands; or, since
they can't emigrate now, since they are trapped, like the
Palestinians, they can join an intifadah and fight and die.

Someday in not too many decades hence, as greatly rich
Western oil barons survey their New Iraq, do you suppose
they'll sit in hotels and laugh at Iraqi men, and call them
drunk's and lazy's, the way whites of US treat our natives
and former slaves, or whites of AU treat their aboriginals,
or whites of FR once snickered at Algerians?

Will the baron's build a Temple Mount to oil, and call it Babel?
And as 1,000,000's of Islamic men rise up and tear it down, do
you think anyone will remember old Don Rumsfeld, decripit in
his nursing home, and ask him, what was your re-employment
plan for after the invasion? Where was your strategy to share
the resource wealth of Iraq with her people, and prevent jihad?

BushCo never had a plan. The only "Freedom"(TM) US offered
Iraqi's was to vote among a hand-picked slate of puppets all
beholden to the Western corporate politburo. Vote, then die
like the rabbits of Australia, Great Fenced into the wilderness,
as fortified Western Capital Green Zones rise up about them.

The same Great Fence that Sharon offers to the Palestinians.
The same "Freedom"(TM) that BushCo offers any one of US.
Hey, I wonder if they're hiring at the Quickey Mart?! Let's go!

Posted by: tante aime at February 13, 2005 01:07 PM


If U.S. fiscal policy is reckless, then Euroland (which now runs a larger deficit than the U.S.) must be condemned to eternal doom.

However, there is more than just a chance that the real American problem - apart from the foreign policy adventurism the Bush team has engaged in - might be related to the fact that everybody practices Keynesianism now - while American Keynesians have reinterpreted Keynesianism in such a way that it looks more like a clone of Friedman´s teachings than like the original article.

Posted by: Jörg Wenck at February 13, 2005 02:33 PM


The mirror-case for the Democrts would not have been "tax cuts for the rich"; rather it would have been half a trillion or so in income tax credits for the botom decile. Which, incidentally is a good idea, surely?

Posted by: David Lloyd-Jones at February 13, 2005 02:46 PM


I'll never forget Greenspan's comment some years ago while testifying before Congress, when he said, "I am trying to find a way to fit fewer ideas into more words."

Posted by: Andrew at February 13, 2005 06:06 PM


I suspect the best we'll get from Greenspan are the words of the Greenspan commission, which said the trust fund had historically been reasonably well managed, that treasury bonds were the best place for SS trust fund assets to be held, and that budget balance should not be an consideration in managing cash flows to and from the trust fund.


http://www.ssa.gov/history/reports/gspan5.html

Ah, yes. The commission also rejected the idea that SS be made voluntary, and the idea that the program be fully funded.

The commission did not render an opinion on making SS 37% voluntary, but presumably, would have considered unfunded partial privatization to be a fudged attempt to make SS voluntary.

Posted by: ChasHeath at February 13, 2005 11:35 PM


Dear Mr. Greenspan,

I am wondering how you can morally point out the inadequacies of Social Security without pointing out the fact that the top 1% of the nation that is not paying their share of the income tax, could go a long way to reducing that shortfall, if the tax cap for the rich was recinded?

Please reply to my question.

Sincerely,

Jeanne Raymond

Posted by: Jeanne Raymond at February 16, 2005 08:39 AM


[comment spam]

Posted by: at February 27, 2005 02:36 PM


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